EMB - FEO To Liquidate

Summary

• FEO will liquidate in December.
• Saba appears to be the driving force, again.
• FEO investors could lock in gains and look elsewhere.

Author’s note: This article was released to CEF/ETF Income Laboratory members as part of our CEF Weekly Roundup on September 29, 2022. Please check latest data before investing.

First Trust/Aberdeen Emerging Opportunity Fund ( FEO ), a hybrid equity/fixed income emerging market fund, will liquidate . This is a boon to shareholders, who saw their discount in FEO narrow from -11.05% to -2.16% in a single day.

This liquidation appears to be the work again of the activists Saba capital. However, FEO did surrender much faster than usual, leading me to speculate (my opinion only) that there may have been some other considerations going on. FEO is a relatively small CEF at only $45 million in assets, might this have been the proverbial sacrificial lamb to appease Saba from going after their more valuable funds?

The reason why I think FEO folded quicker than a paper chair is because Saba only accumulated a relatively small position in the fund, around ~10% of the total outstanding shares. Their first 13G filing was only in June of this year, which was converted into a 13D filing (showing active intent) on August 11, 2022. Less than 2 months later, the liquidation was announced without any proxy letters sent out, Saba board nominations, etc. Anyway, I digress.

The termination date is slated for December 7, 2022 . FEO's discount is currently -1.42% as of October 3, 2022, so there's slim arbitrage potential available. Even if there was a wider discount, hedging FEO's portfolio is going to be difficult given its diverse mandate.

If I were an investor in FEO, I'd sell out of the fund now to lock in the premium/discount boost and look for other opportunities in the space. One option is Western Asset Emerging Markets Debt Fund ( EMD ), which trades at a -12.86% discount and a yield of 11.81%.

Overall, it's been a disappointing last 10 years for FEO shareholders, with a total NAV return of -7.09% over the last decade, but that's probably to be expected given the mediocre performance of emerging market equities ( EEM ) and fixed income ( EMB ) over the time period. It's unlikely that FEO will be missed.

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